Posts tagged ‘Audusd’

Risky assets are higher today, because of cut in China’s reserve-ratio requirement over the weekend by 50BPS to 20.5%, effective from February 24th.

That means that banks are now allowed to lend more money, which of course is good for economy. That’s why we saw a gap higher on commodities, stocks and lower on USD dollar; against the majors, as usually in Risk-on situation.

Finance ministers from the Eurozone are expected to approve a rescue package for Greece today, which is also supportive for the risk trade.

In this week we still favor more strength on FX-majors against the USD since market reversed last Thursday; Euro from 1.2970, Cable from 1.5640, Swiss franc from 0.9300,…

AUD/USD engaged in consolidative trading below 1.0844 last week. Note that AUD/USD is still staying inside near term rising channel, and thus, there is no sign of topping yet. Above 1.0855 will resume recent rally and target a test on 1.1079 high. However, note again that firstly, upside momentum is weak with daily MACD staying below signal line. Secondly, rise from 0.9663 could indeed be a leg of the consolidation from 1.1079. A break below 1.0628 minor support will indicate near term reversal and should flip bias to the downside for 1.0377 resistance turned support and below to extend such consolidation from 1.1079.

In the bigger picture, the up trend from 0.6008 (2008 low) is still intact. Price actions from 1.1079 are treated as consolidation in the up trend only. In any case, with 0.9387 support intact, an eventual upside break out is anticipated, for a new high above 1.1079. However, break of 0.9387 would possibly bring deeper pull back towards 0.8066 key support before the long term up trend finally resumes.

In the longer term picture, whole up trend from 0.4773 (01 low) extended to a point where it just missed 100% projection of 0.4773 to 0.9849 from 0.6008 at 1.1084. At this point, there is still prospect for a lengthier medium term consolidation. But there is no indication of long term reversal yet. We’ll stay bullish as long as 0.8066 support holds and expect an eventual break of 1.1084 to 138.2% projection at 1.3023, which is close to 1.3 psychological level, in the long term.

The Australian Dollar remains strongly correlated to the US S&P 500 Volatility Index, offering an interesting proxy to trading the US stock market. Australia boasts the highest short-term interest rates of the G10, and Aussie Dollar/US Dollar positions offer one of the biggest interest rate differentials for major currencies.
The SPDR S&P 500 ETF Trust tracks the US S&P 500 with near-perfect accuracy. Yet based on dividend yield alone, the Australian Dollar seems like an attractive alternative to the popular ETF. According to Google Finance, the Dividend Yield of the SPY currently stands at 1.91%. The spread between overnight interbank rate in Australian and US Dollars stands at a significant 4.27%. FX traders won’t receive that full spread due to transaction costs, but the spread will remain superior.
The major risk in using the AUDUSD as a proxy for trading the S&P 500 is that the correlation will break down. Yet we see few reasons for why that might happen, and indeed the link remains strong through recent trading

The AUDUSD at 1.07-1.08 looks overdone, says Mansoor Mohi-uddin, Head of Foreign Exchange Strategy at UBS Macro Research, who thinks along the UBS Economics experts lines that at least one more rate cut by the RBA will be seen.

UBS makes this call based on “next week’s January payrolls data likely to show Australia’s unemployment rate ticking up to 5.3%, the latest Chinese data showing higher than expected inflation but lower than expected bank loans growth and the Australian dollar still remaining at high historic levels. This risk is compounded by Australian banks this week announcing they were raising their mortgage rates to consumers.”

As a result of UBS concerns about the overvaluation of the currency, the bank issued a recommendation to buy a three month AUD put/USD call option with a strike at 1.03, expiring 4 May 2012 New York cut. The cost was 1.56% of face value and the spot reference price for AUDUSD at the time was 1.0725.”

Bloomberg pricing issues may be slowing the price action down. By contrast, commodities are just starting to feel the liquidity addition. BOE adds GBP50bln to its QE program. ECB Draghi says the ECB will announce collateral changes at 14:30GMT and that there are downside risks to growth. Precious metals up just under 1%, copper up a bit, and WTI is flirting with $100/bbl again. NYSE opens up so expect some models types to try to play downside in crosses but the lack of momentum and uncertainty over the pop in China CPI is keeping many sidelined,. Macro offers layered between 1.0825 and a 1.0850 barrier. More barriers above. Support 1.0770. For CAD fans, it may be worth taking another look at the downside in the cross. 1.0800 is key resistance and 1.1089 was the high back in 1996. Also, there is the sense that US growth may be slightly better than what the Fed is leading on to. Though the cross may not collapse, progress will likely be slow. Hence selling upside strikes becomes more attractive.When is slides, watch out.

If you want a fundamental bead on the Australian dollar in a glance, just look at the S&P 500 or any other benchmark equity index. The high yield currency is running fully on the balance of sentiment amongst the speculatively minded. This is a relationship that was further confirmed since the RBA rate decision in which the central bank unexpectedly held its benchmark lending rate. Rather than drive forward as the overly ambitious bears are forced to reprice, the Aussie dollar has held fast alongside equities and other risk-sensitive assets. To give a sense of the connection, the 20-day rolling correlation between the S&P 500 and AUDUSD is currently 0.92 (1.00 is perfect). Furthermore, that relationship hasn’t slipped below 80 percent over the past three months. However, there may be a new factor that Aussie dollar traders need to monitor. The RBA has added a new member (Heather Ridout) and she has vowed to champion the argument that the currency is excessively expensive.

AUD/USD’s rally is still in progress and reaches as high as 1.0843 so far today. Intraday bias remains on the upside for further rise. As noted before, prior break of 1.0752 serves as the first signal that consolidation pattern from 1.1079 is finished at 0.9663 and the larger up trend might be resuming. Current rally should target a test on 1.1079 high next. ON the downside, below 1.0701 minor support will turn bias neutral first.

In the bigger picture, the up trend from 0.6008 (2008 low) is still intact. Price actions from 1.1079 are treated as consolidation in the up trend only. In any case, with 0.9387 support intact, an eventual upside break out is anticipated, for a new high above 1.1079. However, break of 0.9387 would possibly bring deeper pull back towards 0.8066 key support before the long term up trend finally resumes.

While the FX market attention is clearly dominated by the Greek run against default, today the Asian session had a little surprise as the RBA decided to keep its interest rate at 4.25%, against the 25bp cut consensus. “The accompanying statement pointed to improved financial market sentiment, although it also said there was scope for further easing “should demand conditions weaken materially””, writes Vassili Serebriakov, analyst at Wells Fargo Bank.

The CHF and the JPY are being kept from higher gains by the respective SNB and BoJ. Today, the SNB Chief stated his commitment in defending the 1.20 floor in the EUR/CHF, and Japan’s finance ministry announced its 1.02 trillion yen selling in November.

About the Eurozone crisis: “A successful resolution to the Greek uncertainty could boost the euro to a test of recent technical resistance”, says Serebriakov. “However we still believe the currency’s rally from January lows remains corrective and is unlikely to be extended significantly above current levels”.

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Risk Disclosure

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.